Dark fiber may be remembered as a product of the .com age where competitive providers built out networks speculatively, but it's clearly back in telecom style.
However, unlike the late 1990s build-it-and-they-will-come drive, dark fiber demand is today being driven by new service drivers – small cell backhaul, data center connectivity and the FCC's E-Rate program.
Dark fiber comes in two forms: unused fiber cable from excess lines and purpose-built dark fiber networks and routes. That sounds straightforward. However, dark fiber is a divisive issue. A group of newer fiber-focused providers and some regional cable operators, including Summit IG, Fatbeam, Axiom, Cross River, Cleareon, Cross River Fiber, Wilcon and USA Fiber, are differentiating themselves by bypassing legacy network route choke points.
Alternatively, traditional telcos remain reticent to provide it to competitors for two reasons. ILECs want to use it for internal purposes like backhauling their own network traffic, but don't want to unnecessarily enable another provider to challenge them in a given market. Regardless, Verizon (NYSE: VZ) and AT&T (NYSE: T), which do offer some dark fiber services to CLECs and government agencies due to FCC and government mandates, see its value.
AT&T, CenturyLink, and Verizon have some dark fiber solutions they sell to federal government agencies through the General Services Administration (GSA) Networx contract. In fact, Verizon's recent purchase of XO Communications gives it a large base of dark fiber facilities in 40 major U.S. markets with over 4,000 on-net buildings and 1.2 million fiber miles. A large portion of the assets are unlit fiber.
"The majority of XO Communications' fiber in each of its top 20 fiber areas is unlit, or "dark," with those areas having 79 percent unlit fiber on average, including up to 96 percent unlit in Dallas," Verizon said in an FCC filing. "This transaction affords Verizon the opportunity to put that unlit fiber to use by supporting further densification of its cell network."
Operators mull strategies
Aaron Blazar, senior partner for Atlantic-ACM, said large operators with deep metro fiber footprints are mulling a dark fiber strategy. "If you walked into any one of the large operators in the U.S., whether it be CenturyLink, AT&T, Comcast or Charter, the topic of dark fiber to the tower definitely is being broached in corporate strategy meetings," Blazar said. "Anybody with a large embedded base of lit services to towers is trying to understand what is my risk level and how much risk am I willing to take before I begin to offer it."
ILECs overall do see value in dark fiber, but for internal purposes.
Verizon's pending purchase of XO Communications' fiber assets, for example, will fulfill two purposes: expand its Ethernet reach and provide backhaul for small cell backhaul.
Meanwhile, as AT&T builds out FTTH, it can leverage the same dark fiber for residential customers to deliver business services and wireless backhaul. AT&T will equip a distributed antenna system (DAS) at a building site along with fiber and Ethernet equipment.
Regional ILECs like FairPoint and Lumos have started offering dark fiber to pursue potentially lucrative backhaul contracts.
FairPoint said its decision to offer dark fiber was simple: addressing the small cell backhaul trend. "Within the next year, wireless carriers will likely select a preference for traditional lit services or dark fiber (or a hybrid of both) to support their small cell backhaul deployments," said Chris Alberding, VP of product management for FairPoint. "Service providers must be ready to support either approach."
Blazar said FairPoint's dark fiber move is about regaining ground in the Northern New England market where it has a sizeable wireless tower footprint. "FairPoint had lost a lot of deals in the states where it has ILEC footprint because of their capital issues for the initial fiber-to-the-tower builds," Blazar said. "It's a no-brainer to come in and try to win back customers based on your interest in offering dark fiber to the tower because you're not engendering a base of 20,000 embedded towers."
Likewise, Lumos Networks has been transforming itself into being a fiber-based provider to businesses and, increasingly, wireless operators. After seeing an uptick in dark fiber RFPs for macro FTTC deals, small cells, and large enterprise opportunities, Lumos began offering dark fiber last May.
Lumos' crowning achievement is Project ARK, which was initially designed for wireless operators. The service provider has also built the vast majority of its 822-mile network expansion into the Richmond and Hampton Roads/Norfolk metro market.
Cable operators are just as divided. Cox and Comcast (NASDAQ: CMCSA), while supplying lit fiber services to wireless operators, don't provide dark fiber, but Time Warner Cable (NYSE: TWC) does have a dark-fiber-to-the-tower product.
Meanwhile, alternative cable operators like RCN Business and WOW! Wholesale will provide it upon request. RCN Business, while seeing more of a demand for lit Ethernet services, will sell dark fiber if customers want it.
One segment asking for dark fiber is enterprises that carry video, a segment that wants to control their own bandwidth destiny.
"Right now for RCN dark fiber is a smaller opportunity than metro Ethernet services," said Mike Carrosquilla, SVP of commercial services for RCN Business. "We get dark fiber requests from people transporting raw video, but those are the types of customers that have the technical wherewithal to understand what they want out of dark fiber."
Likewise, WOW! Business' wholesale division will sell dark fiber based on a customer needed basis. The service provider recently launched a near-net fiber program to have fiber ready to penetrate more buildings throughout its footprint. "We look at dark fiber opportunities in a strategic manner," said Mike Harry, senior VP of business services for WOW! Business. "We're willing to entertain and will sell or lease dark on a regular basis, but it's not the main focus."
Small cell, DAS opportunities
Fiber-based services have become a big part of wireless backhaul as the dawn of 4G LTE wireless services drove the large wireless operators to replace their aging copper-based T-1 circuits with fiber-based Ethernet circuits. A growing part of that includes lit Ethernet services and dark fiber to the tower that allows wireless operators to gain the capacity to support higher amounts of wireless traffic.
While providing dark fiber to towers continues to remain strong, the next focus of attention is on bringing dark fiber to small cells, DAS and future cloud RAN (C-RAN) sites.
Verizon, and more recently Sprint (NYSE: S), have been advocating dark fiber solutions for small cell and DAS deployments as they densify their wireless networks. Such a move will mean a boon of opportunity for a host of competitive fiber players.
"I think small cell on the dark fiber remains to be seen, but definitely outdoor DAS and C-RAN are driving dark fiber demand for more dense networks," Blazar said. "That's what you're seeing with Crown Castle making the fiber investments they are making, and that's why you're seeing Extanet receive the funding -- people place long deep bets on metro fiber to aid mobile infrastructure."
In the near term, Blazar said that there's still strong interest in dark fiber to traditional towers. "Dark fiber to the tower continues to be hot and has been emerging for the last four years or so with Verizon Wireless being the leader driving that side of things," Blazar said. "There's been signals from a couple of other mobile operators that they're looking at dark fiber or leveraging dark fiber so there's a lot of opportunity and that's causing operators to rethink the economics of providing dark fiber to the tower."
Zayo Group continues to reap the rewards of the call for dark fiber to the tower, small cells and C-RAN. During its fourth quarter 2015 earnings call, Zayo said it plans to dedicate $75 million build out 1,000 additional small cell sites.
Dan Caruso, CEO of Zayo, said that while small cell is still early, fiber-to-the-tower customers could be good small cell candidates. "They don't always go on the same pole," Caruso said. "With small cells, they're usually on a different pole or building, but they're leveraging that same investment; that same fiber that's going in the ground is used to tap into and serve multiple carriers."
Lightower is seeing demand for small cell backhaul with 15-20 percent of the sites it connects to being small cells. Through its acquisition of Fibertech, Lightower now has a total of over 30,000 route miles of fiber and nearly 5,000 wireless towers. Fibertech also enabled Lightower to gain further reach into secondary markets such as Rochester, New York, and Cleveland, complementing its focus on larger cities such as Chicago and the New York City metro.
Phil Olivero, CTO of Lightower, said that the desire amongst its wireless customer base for turnkey services is equally as high. "We'll certainly sell dark fiber for small cells, but the carriers there are looking for more of a turnkey site acquisition, power acquisition and installation of small cells they give to us and then provide remote hands afterwards if their radio breaks," Olivero said.
As the desire for dark fiber for small cell demand ramps, the next stage of growth will be for C-RAN. Leveraging the CPRI protocol, C-RAN is a centralized, cloud computing-based architecture for radio access networks that supports 2G, 3G, 4G and future wireless communication standards. Wireless operators will use dark fiber to connect the core network to remote radio heads and small cell radios.
Wells Fargo said that "ZAYO is best positioned to play here, in our opinion, given its large exposure to the wireless space already."
While C-RAN may be in the embryonic state, service providers like Lightower, Cleareon and Zayo are seeing dark fiber RFPs.
Olivero said that the majority of its dark and lit fiber connections are to existing macrocells, but the company is seeing interest in small cells and C-RAN.
"About 15-20 percent of the sites we connect to are small cells and we're seeing some C-RAN RFIs, but that's still early," Olivero said. "Small cell is still early and C-RAN even earlier, but we're having a lot of conversations about it and we have a very dense fiber network in all of our markets so it lends itself perfectly to something like C-RAN and needing that connectivity between the base station and the antennas for the front haul part of the wireless network."
Demand for small cell dark fiber is also emerging in large cities like New York City where upstart dark fiber providers like Cleareon are emerging. The company recently met with a building owner and telecommunications consultant who are building a DAS system for a large premise where Cleareon could bring its dark fiber.
"One landlord is building a DAS system on his own dime serving a 900,000-square-foot building, but the question is where is he going to connect it to?," said Cliff Kane, co-CEO of Cleareon. "We could help pick up from the building to a base station or a hub to connect to multiple carriers in multiple spots and that could be classified as a C-RAN conversation."
But traditional operators aren't the only ones interested in getting a piece of the dark fiber to small cell and tower space. Tower companies like Crown Castle bolstered its small cell and fiber-to-the-tower prospects when it acquired Quanta Fiber (called Sunesys) for about $1 billion in 2015. Ben Moreland, CEO and president of Crown Castle, said that by acquiring Sunesys, the company will have fiber assets to serve over 3,500 small cell opportunities.
E-Rate drives K-12, university growth
Schools, including a mix of K-12 and universities, are tuning into dark fiber via the FCC's revised E-Rate program.
Under the FCC's E-Rate order that was issued in 2015, the eligible services list was updated to support the equal treatment of lit and dark fiber services. What this means is that local school districts will be able to purchase either kind of service depending on their specific needs via an FCC Form 470 application.
Any applicant that issues RFPs for dark fiber will be required to seek bids for lit services like wavelengths over the same time period. Additionally, applicants have to include network equipment and maintenance costs associated with lighting dark fiber in the same application with the dark fiber lease.
"What makes E-Rate similar from a business perspective to the fiber-to-the-tower space is that with fiber to the tower you're getting a 20-year deal, whereas in the E-Rate space you can get a 5-10 year deal, which in enterprise is very different from your traditional versus 1-3 year deals for enterprise connectivity," Blazar said. "This is making these E-rate deals very attractive to a number of people."
Greg Green, president of Fatbeam, said dark fiber adoption by schools using E-Rate funds in its serving area has increased by 63 percent. Fatbeam has taken an interesting approach by building out fiber networks for local school districts and then attracting businesses.
"We were recently looking at growth post school districts, the markets we operate in are from 50-120,000 in population," Green said. "Those markets have had tremendous success after the initial build of E-Rate and what I mean by that is we'll go from a $15,000 or $20,000 a month contract and in two or three years we're adding $50,000 of recurring revenue in those markets."
With Lightower, the focus with E-Rate has been on universities. In the K-12 space, schools have just begun to deploy dark fiber so it's still too early to see results. "From an E-Rate perspective now about 30 percent of the deals we're quoting are for dark fiber," Olivero said. "The USAC funding process has changed so that will continue to increase."
Others, like RCN Business, see demand for traditional managed Ethernet services. "All of the E-Rate contracts we're involved in are all coming in as Metro Ethernet type of requests," Carrosquilla said. "We're not seeing a lot of dark fiber requests as it relates to E-rate."
Since dark fiber has to be managed by the school, the question is who will provide installation and maintenance?
FairPoint noted how more school districts have cut their budgets, leaving schools with minimal resources to carry out deployment. "It becomes a question of what's the most efficient path for them, what's more scalable and, more importantly, do they have the expertise to do that because the wireless carriers are much more equipped to do dark fiber than the local high school," Alberding said. "If I think about the last five years in education, the theme has been reduce, reduce, reduce and IT departments have gone from five people running a small school district to one guy being the IT guy."
Fatbeam disagrees and finds that most of its E-Rate customers will either conduct installation themselves or work with a local IT shop. "We find that they either have a value added reseller (VAR) or a partner that has experience or in some cases internally have the maturity and the technology acumen to do it," Green said. "They are either doing it through the fact that they have the resources internally or they're using a VAR to install their own hardware."
Data center interconnection rising
As content and cloud providers like Netflix (NASDAQ: NFLX) and Amazon Web Services (AWS) expand service, they are looking for data center bandwidth.
Simply put, data center interconnect (DCI) is the networking of two or more different data centers to achieve business or IT objectives. By interconnecting separate data centers, each of them can work together, share resources and/or pass workloads between one another.
Given the amount of data and content that large data centers such as Cermak in Chicago process, providing dark fiber for data center interconnection within a data center and between data centers makes sense. The dark fiber providers supply diverse site connectivity, but also service to other tenants.
"We're seeing content providers look for connectivity between data centers and they want to have that ability to manage their own network," Blazar said. "We're also seeing data center operators invest in dark fiber between their facilities to offer a virtualized cross connect between their facilities either within a metro area or within a region."
While other markets are emerging, some hot beds for providing dark fiber data center interconnection services are in Miami, Fla., Ashburn, Va., and New York City and the nearby New Jersey area.
New York City, in particular, has become a hot bed of data center interconnection activity between new players like Axiom and Cleareon. Axiom, which has built out a dark fiber network serving New York City, is finding new opportunities in penetrating traditional business buildings and data centers.
"There's a dearth of dark fiber available for mid-tier buildings, certainly in New York City," said Felipe Alvarez, president of Axiom Fiber Networks. "You have the incumbents, but they don't give the option for dark fiber. Also, the data center folks are interested in dark fiber to connect their locations because a neutral provider allows them to turn short length cross connect into a long cross connect across a river into New Jersey, for example."
Cleareon, which also plans to target large business buildings, is finding similar trends. The service provider is looking to extend service into a host of data centers in New Jersey, including DRT, Telx, and Cologix, prompting Cleareon to extend its network across the Hudson and East rivers. Cleareon is considering extending its dark fiber by building its own route or renting a path from the New Jersey Port Authority.
At the same time, Ashburn in Virginia, one of the largest data center and Internet hubs, also has been a hotbed of activity. By attracting a host of data centers, carriers and enterprises, SummitIG's revenues rose 650 percent over the past year.
Some of the targets include the densely populated infrastructure routes in Northern Virginia stretching from Data Center Alley in Loudoun County to Reston, Va., Vienna and Tysons Corner commercial districts to emerging areas like Prince William County. "A lot of those buildings are data centers, you are seeing an appetite for commercial buildings for dark fiber to come in," said Sunny Kumar, chief commercial officer for SummitIG. "We're definitely seeing the customers thirst, or hunger, for dark fiber [that] is readily available and they don't have to fight the telco on capacity limitations because they can use the dark fiber to manage the networks as they see fit."
No less aggressive is USA Fiber, which recently activated what it says is one of the largest integrated telecommunications carriers in the United States on its newly installed dark fiber platform in Ashburn, Va. In order to stand out from the crowd, USA Fiber has taken an altogether new approach to building out fiber that doesn't follow the traditional congested network routes.
With the Ashburn Ring, USA Fiber is building a conduit system with multiple 864 count fiber cables populated to support Ashburn's data center clients. Upon completion, the diverse underground ring will be 7.2 miles.
Bypassing the Washington, D.C., area and then back up through Northern Virginia into Ashburn route, the Ashburn Express runs along an underground low latency path from Ashburn to Baltimore, Md. Because the fiber path bores under the Potomac River, USA Fiber bypasses Washington, D.C., entirely and reduces latency in excess of 25 percent.
"One of our core competencies in understanding those engineering and permitting challenges is working through multiple state and federal entities to make the shot," said Judd Carothers, president of USA Fiber. "The shot itself is 10 feet below the river bottom in solid bedrock, but the trick is procuring and securing the needed permissions to perform the construction across a sensitive area."
Regardless of the dark fiber approach, the realities all players face are twofold: pricing and the ability to offer complementary lit services. Being an emerging service, dark fiber providers will have to be flexible with how they deliver service and price them accordingly.